This week marks the one-year anniversary for the end of the COVID-19 sell off. If you recall, last March the Dow Industrials plunged 38.4%, the S&P 500 dropped 35.4%, and the Nasdaq sank 32.6%. The average bear market typically lasts 302 days, but this one lasted just 33 days. It was the shortest bear market on record!
Since last year’s historic lows, the markets have surged back in a fashion swifter than anyone could ever imagine. Often God works like that! As Ephesians 3:20 says, “Now to him who is able to do immeasurably more than all we ask or imagine, according to his power that is at work within us.” God is always working in our lives to answer prayers, help those in need, and get us through some of the most difficult times much faster than we thought was ever possible.
This recovery has been one for the record books, but we know there is still a long road ahead for many parts of the world. Economies around the globe are still ailing from the lingering impact of the pandemic. Unemployment and COVID case counts are still rising. New strains and rising COVID-19 cases in Europe have led to renewed lockdown restrictions. Europe saw hard times in 2020, as its GDP fell nearly 7%. With its renewed restrictions, Europe is now in the midst of a double-dip recession.
Here in the United States, economic recovery is happening much faster. The Atlanta Fed recently forecast the U.S. economy to grow at a whopping 8.4% in the first quarter of 2021, compared to Europe’s projected rate of -0.8%. Many economists also see a full year of economic growth for the U.S., as projections call for 6% annualized GDP growth for 2021.
If the U.S. is to get its economy back to pre-COVID levels, it needs consumer spending to get back on track. Spending accounts for nearly 75% of U.S. GDP growth. This means we still have a long way to go! Last week’s Commerce Department retail sales report was a bit disappointing with a 3% decline in February numbers compared to a 7.6% gain in January. Clearly, stimulus checks in January helped fuel spending, but that was short lived.
The overall trend for retail sales is still favorable, if we look at the past three months with spending up 6% over this time. This is a very encouraging sign in our recovery, especially as another round of stimulus is set to hit consumers in the coming weeks, which should help boost March and April sales numbers. Additionally, as more states lift COVID restrictions and more people receive COVID vaccinations, we could see shoppers back in full swing!
On the whole, the U.S. is in a much better spot than it was a year ago. Corporate sales and earnings have steadily been improving, and momentum is beginning to build. Third- and fourth-quarter 2020 earnings results were some of the best on record, and we anticipate the first and second quarter of 2021 to be equally impressive.
FactSet Research is forecasting S&P 500 first-quarter earnings to grow at an annualized rate of 22%, which would be the best year-over-year growth rate since the third quarter of 2018. Analysts have also been consistently increasing their future earnings estimates, which typically bodes well for future earnings surprises, a key contributor for higher stocks prices in the weeks and months ahead.
First-quarter earnings results will begin in mid-April and trickle in through early May. This should help send stocks higher. We are excited about how our “proud to own” stocks will do during the upcoming earnings season. We have some of the best opportunities available in our portfolios, and these companies are poised for impressive results in April and May. Overall, our team anticipates results much better than we imagined!
Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights
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